How the ‘sheepskin effect’ signals education and affects wages
Religion & Liberty Online

How the ‘sheepskin effect’ signals education and affects wages

Note: This is post #56 in a weekly video series on basic microeconomics.

Why do wages in America differ greatly among workers? One reason, says economist Alex Tabarrok, includes differences in human capital—tools of the mind. Education is one of the biggest investments people make to increase their human capital. Which college majors offer the greatest returns? And are all returns on education due to human capital? In this video by Marginal Revolution University, Tabarrok explains how a college degree can “signal” other factors, and discusses what is commonly known as the “sheepskin effect.”

(If you find the pace of the videos too slow, I’d recommend watching them at 1.5 to 2 times the speed. You can adjust the speed at which the video plays by clicking on “Settings” (the gear symbol) and changing “Speed” from normal to 1.25, 1.5 or 2.)

Previous in series: Is education signaling or skill building?

Joe Carter

Joe Carter is a Senior Editor at the Acton Institute. Joe also serves as an editor at the The Gospel Coalition, a communications specialist for the Ethics and Religious Liberty Commission of the Southern Baptist Convention, and as an adjunct professor of journalism at Patrick Henry College. He is the editor of the NIV Lifehacks Bible and co-author of How to Argue like Jesus: Learning Persuasion from History's Greatest Communicator (Crossway).